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September 24th, 2011:

It’s peak season, but delta supply chain in doldrums

South China Morning Post – 24 Sept 2011

Plunging confidence in the US and Europe eats into orders, with just 13 weeks to go to Christmas

A chill wind is sweeping across the factory supply chain in front of a looming global recession.

From manufacturers in the Pearl River Delta, to freight forwarders and package delivery services in Hong Kong, to retailers and shoppers in the United States and Europe, confidence is falling sharply.

The spiralling euro-zone sovereign debt crisis and a lack of faith in US plans to push down interest rates have already cooled spending in advance of the Thanksgiving and Christmas seasons.

“We can’t feel even a tinge of Thanksgiving as the market is extremely quiet now,” Toll Global Forwarding (HK) managing director Kelly King said. Demand was abnormally sluggish for this time of year, traditionally the peak season for the air and sea cargo industry, he said.

The air freight rate from Hong Kong to Europe fell to HK$15 per kilogram this month, down from HK$18 to HK$20 per kilogram in June, King said. Even with sharp rate cuts, carriers and cargo agents found it tough to fill cargo space on the Europe leg.

With just 13 weeks to go to Christmas, shipping lines and freight forwarders are seeing little of the surge in shipped goods of last year. Airlines had cut their cargo flights and grounded some aircraft, King said.

FedEx, operator of the world’s biggest cargo airline, yesterday lowered its earnings forecast for this year by 10 US cents per share on falling shipments for the second quarter in a row in the US. FedEx chief executive Fred Smith said the company expected sluggish economic growth to continue. Rival UPS also said last week that the US economy grew at a slower rate than it had anticipated.

Hong Kong Garment Manufacturers Association chairman Willie Fung Wai-yiu said the confidence of overseas importers and consumers was battered.

“Buyers, who had already bought very cautiously so far this year, lost confidence,” he said. “Some place orders unexpectedly, but they want shipment right away.”

In some cases, buyers have ordered a container of garments to be delivered within four weeks. Fung said the normal lead time for production of fabric alone was four weeks, not counting production and shipping of the garments.

Federation of Hong Kong Industries deputy chairman Stanley Lau Chin-ho said the bleak outlook on trade – combined with issues on the mainland, such as industrial reform, cost inflation and labour shortages –would intensify a survival-of-the-fittest struggle in the Pearl River Delta.

“The European situation is the most worrying, with the fate of Greece hanging in the air,” Lau said. “It is uncertain whether the worst … is yet to come.”

Hong Kong Air Cargo Terminals, (Hactl), which handles 80 per cent of the cargo at Hong Kong International Airport, recorded its fourth consecutive monthly decline in cargo volume last month.

“There is no sign of optimism,” Hactl marketing and customer service general manager Lilian Chan said.The ongoing relocation of mainland factories further inland amplified the drop in air cargo in Hong Kong, she said.